MSTR Cat

Crypto Law/Level VI · Market conduct/6.1 Manipulation/Lesson 1

Pump-and-dump

How a pump-and-dump works, which US laws reach it whether a token is a security or a commodity, and what the Saitama prosecution shows about how these cases are proved.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. The cheapest protection costs nothing: never say ‘the team is not selling’, ‘liquidity locked’ or ‘reviewed by regulators’ unless true. 7 U.S.C. §9(1) and CFTC Rule 180.1 punish untrue material statements; once a claim stops being true, correct it publicly.
  2. Selling your own tokens after a rise is lawful; deception linking the buying, hype and sale is the offence. Publish team wallets and any intended sales before promoting, because a sale you said would not happen becomes evidence.
  3. Never pay for sham trades, coordinated wallet buys or undisclosed hype: 15 U.S.C. §78i(a)(2) and 7 U.S.C. §13(a)(2) reach them, carrying up to 20 years per the Saitama charges. Avoiding them is free; the catch is that agents acting for you count.
  4. For EU-facing launches, MiCA Article 91 (applying since 30 December 2024) bans false or misleading signals about supply, demand or price; the same honest wording satisfies it, so one disclosure set serves both markets if kept current.

MaterialsThe SEC’s Investor.gov glossary entry ‘Pump and Dump Schemes’15 U.S.C. §78i(a)(2) (securities) and 7 U.S.C. §9(1) with CFTC Rule 180.1, 17 C.F.R. §180.1 (commodities), on law.cornell.eduThe US Attorney’s Office (District of Massachusetts) press release of 9 October 2024 announcing charges against 18 individuals and entitiesA block explorer page showing a token’s largest holders and the wallets that funded them

Wonder

  1. Is it a crime to talk up a coin I hold and then sell it?
  2. Which law applies if the token is not a security?
  3. How do prosecutors prove that a price rise was manufactured on purpose?

Explore

  1. The SEC’s Investor.gov glossary describes the classic scheme: fraudsters spread false or misleading information to create a buying frenzy that ‘pumps’ the price, then ‘dump’ their own holdings at the inflated price; when the hype stops, the price falls and later buyers lose. The token version has the same three parts: a position bought cheaply, an artificial demand signal such as lies, paid hype or sham trades, and an exit that is hidden from buyers. US law does not punish a rising price or selling as such. It punishes the deception that links the three parts.
  2. If a token is a security (lesson 1.2.3), Section 9(a)(2) of the Securities Exchange Act, 15 U.S.C. §78i(a)(2), makes it unlawful to effect, alone or with others, a series of transactions that creates actual or apparent active trading, or raises or depresses the price, for the purpose of inducing others to buy or sell. It covers securities whether or not they are registered on an exchange. Section 10(b), 15 U.S.C. §78j(b), and SEC Rule 10b-5 add a general ban on manipulative or deceptive devices, and 18 U.S.C. §1348 makes securities fraud a federal crime.
  3. Most tokens that are not securities are treated as commodities in the US (lesson 1.2.4). Section 6(c)(1) of the Commodity Exchange Act, 7 U.S.C. §9(1), bans any manipulative or deceptive device in connection with a contract of sale of any commodity in interstate commerce, which reaches spot trading, not only futures. CFTC Rule 180.1 applies that ban to intentional or reckless conduct, including untrue statements of material fact. 7 U.S.C. §13(a)(2) makes manipulating or attempting to manipulate a commodity price a felony, and wire fraud (18 U.S.C. §1343) applies whatever the label. The SEC’s 2025 meme coin statement left fraud enforcement in place (lesson 3.2.3).
  4. On 9 October 2024 federal prosecutors in Boston unsealed charges against 18 individuals and entities, including the leaders of a token company called Saitama, which at its peak allegedly claimed a market value of $7.5 billion. According to the charging documents, its leaders said falsely that regulators had reviewed their business plan, that they were not selling their own tokens, and that the token’s code prevented manipulation, while secretly selling for tens of millions of dollars. From about July 2021 they allegedly coordinated small buys from many wallets on Telegram to ‘create an illusion of massive buys and new holders’. These are allegations; two Saitama staff pleaded guilty.
  5. The same release set out the stakes: the market manipulation charge carries up to 20 years in prison and a fine of up to $5 million or twice the gain or loss, and wire fraud up to 20 years. The SEC filed parallel civil complaints the same day, alleging that tokens including Saitama’s were offered and sold as securities; three promoters agreed to settlements subject to court approval. In the EU, Article 91 of MiCA, applying since 30 December 2024, bans market manipulation in crypto-assets, including spreading information that gives false or misleading signals about supply, demand or price (lesson 3.3.1).
  6. For builders, the risky statements are the confident ones: ‘the team is not selling’, ‘liquidity is locked’, ‘audited’, ‘reviewed by regulators’. Each must be true when said and stay true, or be corrected; team wallets are public and their sales are evidence (lessons 5.1.2 and 6.3.4). For holders, the chain records what promoters do as well as what they say. A practical check: open the token’s holder list on a block explorer, trace who funded the largest wallets, and note whether many were funded from one address within minutes of each other. If so, the ‘crowd’ may be one person.

Key facts

  • The SEC describes a pump-and-dump as spreading false or misleading information to inflate a price, then selling one’s own holdings at the inflated price.
  • 15 U.S.C. §78i(a)(2) bans a series of transactions creating actual or apparent active trading or moving a security’s price for the purpose of inducing others to buy or sell.
  • 7 U.S.C. §9(1) and CFTC Rule 180.1 ban manipulative or deceptive devices in connection with any contract of sale of a commodity in interstate commerce, including spot sales.
  • On 9 October 2024 the US Attorney’s Office in Boston announced charges against 18 individuals and entities for fraud and manipulation in crypto markets, including Saitama’s leaders.
  • According to that release, a market manipulation charge carries up to 20 years in prison and a fine of up to $5 million or twice the gain or loss.
  • Article 91 of the EU’s MiCA Regulation, applying from 30 December 2024, prohibits market manipulation in crypto-assets.

Exercise nine, six, three, one

9CollectList up to 9 things a token promoter you have seen (or one described in the Saitama charges) said or did in the days before and after a price spike, such as claims about the team, buys from new wallets, or posts about the price.
6ClusterSort them into 6 categories: claims about the team’s own selling, claims about safety or review, trading activity, paid or coordinated promotion, price predictions, and actions that are simply ordinary business.
3DistillReduce the 6 categories to 3 groups: things that are true and harmless, things that would be deceptive if untrue, and things you cannot judge without on-chain evidence.
1CrystallizeWrite 1 sentence explaining, in your own words, why selling a token after its price rises is not a pump-and-dump unless deception connects the buying, the hype and the sale.

Fact check

Dates, figures and claims checked against the published sources listed below.

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